- INSIGHTS
2025: The Great Employer Exodus from Fully Insured Health Plans
Why will 12 million employees leave fully insured plans by 2030? Uncover the 5 main reasons and how self-funding represents a safer move for mid-size employers post-ACA.
12 million additional employees are expected to leave fully insured health plans by 2030, according to McKinsey’s 2024 Employer Health Benefits survey.
In the past, this traditional model promised simplicity to employers: a fixed monthly premium with minimal administration.
Yet in 2025, this certainty has evaporated, replaced by steep, unpredictable renewal increases, as high as 50% — a reflection of the volatility in the post-COVID landscape.
CFOs now cite healthcare costs as their most significant financial risk, driven by opaque carrier practices and unpredictable claims.
The impact extends beyond finance teams. The healthcare budget has affected founders and HR leaders, fueling medical inflation, hurting hiring, and triggering budget cuts that shrink profits, freeze pay raises, and hurt retention. Making self-funding a strategic path to redemption.
But what if the solution isn’t with insurers but in your hands? Self-funded health plans give employers visibility into claims data and flexibility in managing costs and customizing benefits.
Today, according to the KFF report, 63% of US workers are covered by self-funded plans, and by 2030, 75% will be.
Curious about why fully insured plans are failing and how self-funding restores control and predictability? Let’s dive in.
The 5 Realities Employers Face with Fully Insured Models
1. Reduction of Employer Profits
2. Employers Absorb Medical Inflation
3. Rigid Benefits Cost Top Talent
4. Higher Compounding Renewals
5. Eliminated Employee Pay Raises
The 5 Realities Employers Face with Fully Insured Models
1. Reduction of Employer Profits
The fully insured model is straightforward.
You pay a fixed monthly premium, and the insurance carrier handles everything: administration, pharmacy, claims adjudication, and cost management, regardless of whether employees use the insurance.
But simplicity comes at a steep price. The employer has virtually no transparency or control over healthcare costs.
You’re handing the insurance carrier your healthcare budget and hoping for the best at the year’s end.
Fully insured health plans make it non-viable for employers to understand what’s driving their healthcare costs or identify opportunities to implement cost-containment strategies or claims management, leading to higher, unmanaged healthcare expenses, reducing employer profits.
2. Employers Absorb Medical Inflation
One drawback of fully insured health plans is unpredictability: Employers face unpredictable renewal premiums due to unknown claims experience.
For instance, you could face a sudden 50% renewal increase with no detailed explanation or ability to influence the outcome.
Mercer’s latest report reveals that 67% of CFOs identify healthcare as their most unpredictable cost, especially with high-cost claimants rising dramatically.
The fully insured model amplifies this challenge by offering employers the least control and visibility, leaving them to absorb rising costs without recourse.
3. Rigid Benefits Cost Top Talent
Fully insured health plans are rigid by design, and that rigidity prevents employers from tailoring benefits to the specific needs of their workforce.
In these plans, employers must accept standardized benefit designs set by insurance carriers.
This one-size-fits-all approach disregards the unique health requirements and preferences of different employee populations, and benefits don’t align with their needs.
When this happens, job satisfaction drops, making them more likely to seek employers with more personalized or competitive offerings.
This is especially true when hiring top executives stepping into roles with higher negotiating power.
These candidates often have competing offers with robust benefits, and they want to understand how your health plan works because, at that level, benefits can make or break a deal.
Your benefits package should be a competitive advantage. That’s what it was originally designed for.
But as healthcare costs have skyrocketed, that edge has dulled—especially under fully insured models—unless you intentionally use it strategically, especially to win top talent.
4. Higher Compounding Renewals for Employers
Insurance carriers profit from inefficiencies. The more claims cost, the higher their potential revenue from administrative fees, rebates, or pharmacy mark-ups.
There’s a built-in incentive for carriers not to manage claims effectively, which directly opposes the employer’s interests in keeping costs down.
Fully insured carriers refuse to intervene proactively in high-cost claims situations.
For example, suppose an employee has an expensive treatment at a high-cost hospital rather than a less expensive outpatient center.
In that case, the carrier profits more from the higher claim, creating a direct conflict of interest.
As a result, employers pay more in premiums without effective cost management, directly impacting their bottom line.
5. Eliminated Employee Pay Raises
Frequent unexpected renewals in fully insured plans are tightening employer budgets.
With more dollars being funneled into healthcare costs, many companies are left with fewer resources to invest in salary increases and other forms of employee compensation.
This financial squeeze forces tough decisions: business growth initiatives are delayed, merit raises are frozen, and benefits are scaled back.
To manage rising premiums, employers often pass more costs onto employees through higher deductibles, increased copays, or reduced coverage.
Over time, this approach chips away at employee satisfaction and morale, leading to declines in productivity and retention.
The truth is, today’s market conditions aren’t doing employers any favors. Fully insured plans may not be the culprit, but they’re not designed to help you win.
That’s why more employers ask the same question: “What are we missing?” And the answer starts with rethinking the funding model.
In response to forces outside their control, many employers are now turning to self-funding, because when done right, it restores that control.
Fully Insured vs. Self-funded Health Plans
In self-funded programs, employers cover incurred claims directly rather than paying fixed premiums.
To manage the risk, employers purchase “stop-loss” insurance, which protects against catastrophic claims from individual employees (called “specific stop-loss”) and overall claims that surpass a certain amount for the entire group (called “aggregate stop-loss”).
So, even though it’s called “self-funded,” employers manage risk through a combination of self-payment and protective insurance layers.
Under a properly structured self-funded plan, employers gain visibility into where healthcare dollars are spent and can actively manage claims, such as negotiating lower costs for expensive medications or redirecting care to higher-quality, lower-cost facilities.
One key reason employers are shifting from fully insured to self-funded health plans is the proactive claims management available with a properly structured plan.
If an employee receives a high-cost diagnosis like cancer, the program administrator can intervene early to offer more affordable, higher-quality care alternatives.
This not only lowers the costs significantly but leads to a better patient experience.
Employees aren’t forced into changes but are provided with options, often better ones they weren’t aware existed.
According to the KFF 2025 report, 63% of covered workers in the US are enrolled in self-funded health plans.
But, only 32% of mid-sized employers (under 500 employees) have transitioned.
If you advise mid-sized employers, this trend raises a key question:
What’s holding them back?
With costs soaring, more employers are exploring alternatives—but misconceptions about self-funding often stand in their way.
4 Common Self-Funding Myths
Here are the 4 most common misconceptions preventing mid-sized employers from transitioning to self-funding.
1. “Self-Funding Is Risky”
Premiums in a fully insured plan seem stable until renewal hits with unexpected increases.
Without claims transparency, employers are left unprepared.
In contrast, a well-structured self-funded plan provides weekly trigger diagnosis reports, allowing carriers to identify high-dollar claimants and manage claims in real time, not just at renewal.
2. The Belly Button Myth
As companies grow, they add new “belly buttons” (employees and their dependents) with unknown health risks.
CFOs often avoid self-funding, fearing unpredictability. But both models face re-underwriting after 10% growth.
Fully insured plans offer less control, no claims data, and no early intervention. Making growth riskier when you’re blind to each new belly button.
3. “Self-Funding Is Only for Fortune 500 Companies”
Before the Affordable Care Act, self-funding wasn’t practical for mid-sized employers because appropriate products and protections weren’t available.
Post-ACA, reinsurance, and stop-loss carriers have introduced protective measures, enabling smaller companies (ranging from 50) to safely adopt self-funding.
4. “Employees Are Worse off in Self-Funded Plans”
Employees in properly structured self-funded plans gain personalized care, transparent options, and better outcomes through focused management.
One client, a municipality, faced a 33% renewal increase on a fully insured plan.
Virtue Health helped them reduce the renewal to an 8% net increase, save $539K in year one, and use the surplus to fund $0 primary care visits via a new clinic.
Why Self-Funding in 2025 Isn’t What You Think
Still, even with the right setup, the claims environment in 2025 is more volatile than ever. Both fully insured and self-funded plans have been exposed.
Many self-funded health plans today are fully insured in disguise.
That’s because a large number of group Captive and Consortium programs in Public Stop-Loss Pools grow by using the same strategies as fully insured carriers.
Post-COVID aggregate claims have only added fuel to the fire. Some major programs have missed their loss ratio projections by as much as 15-30%.
At the core of the problem? Whether the Stop-Loss Pool is Public or Private.
That’s why at Virtue Health, we built a Private Stop-Loss Consortium, designed for high claimant management and long-term cost containment.
With skin in the game, 67% of our 2024 renewals saw only a 6% increase.
But lower renewals are just the start. When employers switch to a properly structured self-funded health plan, the benefits go deeper than numbers on a spreadsheet. It touches real lives.
One of the hidden costs in traditional health plans? A 3% pay raise gets wiped out the moment premiums rise.
Self-funding slows that down, so employees keep their raises. And with the right plan design, deductibles don’t climb every year.
That means fewer employees pulling from their 401(k)s, taking out loans, or working overtime to prepare for a $10,000 hospital bill.
One employee told us his wife was pregnant, and he’d been picking up extra shifts to cover their deductible.
After switching to a self-funded plan through Virtue Health, his deductible was waived because he accessed high-quality care.
Just like that, the stress disappeared. No loans. No late nights.
Less stress. Better healthcare. And employees who stop avoiding care because it’s affordable to use their plan.
And when that happens, employers feel it too. Fewer complaints walking into the office. Less pressure on leadership. A workforce that’s healthier and happier.
That’s what we help deliver. And here’s why mid-size employers choose us to get there.
5 Reasons Mid-Size Employers Choose Virtue Health
- Trust and Integrity: Virtue Health doesn’t inflate renewals to recoup past losses. Renewals are based on actual data, not artificial pricing strategies designed to make up for high claims.
- Fair Renewals, Even in “Bad Years”: Virtue Health doesn’t punish groups for past claims; we provide a program with long-term protection through the good and bad.
- Better Client Retention for Advisers: Many stop-loss carriers lure clients with a low first-year rate, only to raise it by 30-50% the next year. With Virtue Health, advisers avoid this cycle, reducing client churn and strengthening relationships.
- Proactive Cost Containment: Virtue Health actively works year-round to mitigate costs, not just at renewal time. This hands-on approach reduces volatility and keeps client plans sustainable.
- Not for Everyone: Virtue Health doesn’t accept every group. This approach protects benefits consultants and employers from the instability that comes from pooling high-risk cases together.
Book a demo and see how we can help you stand out where it matters most, with employers.
John W. Sbrocco
@johnwsbrocco
IF YOU’RE A BROKER READY TO…
Elevate your clients’ healthcare strategy with a long-term, stable solution, it’s time to consider self-funding.
